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Tough times for health care insurers — and patients – Pacific Research Institute

Tough times for health care insurers — and patients

It’s been a tough year for some of America’s favorite health care boogeymen: insurers.

U.S. insurers had to absorb nearly $2.9 billion in unexpected medical expenses from their customers in Obamacare’s exchanges in 2014, according to new data from Centers for Medicare and Medicaid Services.

But don’t shed too many tears for the health insurers. They’ll make up those multibillion-dollar losses in 2016 — by ratcheting up premiums for patients.

Obamacare’s authors knew that insurers might take a bath in the exchanges. Congress even wrote a mini-bailout for insurers into the law to keep them from complaining too much.

That mini-bailout is called the “risk corridor” program. The concept is simple. Some insurers will pay out less in medical claims than anticipated. Those fortunate companies have to send some of their revenue to companies that had to pay out more than anticipated.

Ideally, the risk corridor would have allowed some level of parity among insurers, spreading out both the pain and the profits.

Unfortunately, that theory hasn’t worked out in practice. Unprofitable insurers faced a $2.9 billion deficit. But profitable insurers were only able to offer $362 million. That’s a sizable difference.

The Heritage Foundation estimates that insurers have lost 12% this year by selling on the exchanges. That’s despite a $7.9 billion subsidy from the federal government to offset the expense of enrollees that the feds knew would be particularly costly to insure.

And the problem isn’t just temporary. Federal data suggest that insurers will be coping with the same shortfalls when the risk-corridor provision expires on Jan. 1, 2017.

Much of the problem is that Obamacare has enrolled the sick and elderly in large numbers, but young and healthy consumers have remained less likely to buy coverage. Many have decided to face the Affordable Care Act’s tax penalty of $325 or 2% of income, whichever is greater. Next year, that penalty will increase to $695, or 2.5% of income.

During the 2014 enrollment period, young adults accounted for only 28% of all who signed up — a far cry from the administration’s goal of 38%. Young people often pay more into the risk pool than they draw out, so their absence helps explain the losses reported in 2014.

Nor is the outlook bright. The new open enrollment period began on Nov. 1, and the Department of Health and Human Services anticipates that the number of newly insured will barely increase in 2016. Overall, the agency estimates that enrollment will be about 10 million next year — less than half of what the Congressional Budget Office predicted earlier this year.

There’s one more key faulty prediction by the feds: fewer wealthy and middle-class Americans than anticipated ended up buying exchange coverage. So the very people who can least afford premium increases — lower-income Americans with little choice but to shop on the exchanges — are precisely the ones who will face these increases.

Americans are already getting a hint of the impending price spikes. In announcing premium increases in October, UnitedHealth Group’s president David Wichmann explained that those who signed up simply “required more medical services than original expectations.”

UnitedHealth is hardly unique. Many insurers have requested premium increases of 20% to 40% for next year. In August, Blue Cross Blue Shield secured approval in Tennessee for a 36.3% price hike, while Oregon OK’d a 25.6% increase for Moda Health Plan.

Even these premium increases are mild compared with what’s coming when the risk corridor provision and other stopgaps expire.

A recent University of Minnesota study found that after 2016, the cheapest plans would experience some of the most dramatic premium increases. Families who purchased “bronze” plans on the exchanges could see 45% increases. Some unlucky individuals could see their premiums shoot up 96%.

“Our data still indicate that — for at least the next decade — premiums will increase faster than they did in the years before the Affordable Care Act’s implementation,” cautioned one of the study’s authors. “Federal subsidies for ACA plans won’t be able to keep up.”

Such stark financial realities illustrate that insurers aren’t the only ones losing at the hands of Obamacare — so are the American people.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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